Tuesday, January 26, 2010

Tax Pros & Tax Prep Fees

ahoy June,

happy new year!

I did some research on possible local tax preparers with experience with indies. Here are two that I just contacted: #1 XXX, name & website here. H
e is estimating ~$350 total, depending on how organized I am (which i believe i am pretty organized as far as possible deductions and receipts go, thanks to your book). He wants to see a copy of our 2008 returns, though our 2008 returns have no self-employed work on them (that started this year). He was recommended by a friend whose father (runs a nature tour business, not sure if he is self-employed) uses him for his taxes.

And #2 YYY, name & website here. I am still waiting to hear back from him, but recommended by another friend.

If you have any info/comments on either one, I would appreciate it.

hope all is well.
peace, wayne

Hi Wayne,

Hint #1:
You need an appendix removed. How many appendectomies did the doctor do? Are you his first? You need to ask a similar question of your potential tax pro.

Hint #2:
There no mention of self-employeds on his site. He does mention small business. Candy store? Widget makers?

Hint #3:
Site says check out our blog. However, the blog is not CPA's material but columns from NY Times, Wharton, etc.

Other point, I don't know how a flat fee of $350 or any flat amount can be given -- regardless of whether you are organized or not. Do you have a home office? Business auto? 2 business autos? An indie pension? Employees? I can do a tax return for one indie for $500 and for another indie for $5,000. Both indies; both IT consultants; very different businesses.

Before you talk with the second guy read these posts tax pros - tax prep fees - tax returns


Monday, January 25, 2010

Reimbursements/Reimbursements/Reimbursements/Reimbursements ....

OK Indies, you must be a little resourceful. And I don't mean to pick on the indie who sent the following email it's just that V from Katy, TX happened to hit at the right moment.

I get the same question about reimbursed expenses over and over and over. I usually skip the emails and go on to the next one hoping that the creative, intelligent, resourceful indie who asked the question will either come back to the blog and go down the list of Topics/Categories/Labels on the left and find expenses -- reimbursed . Voila! there's the answer. Or, even try one of two search tools on the blog: One at the top left -- note the magnifying glass; the other middle left, cleverly worded, "Search This Blog." Just try variations of what you are looking for -- reimburse, reimbursement, reimbursed expenses. You get the picture. Right.

ndies you must think on your own. Remember my urging you to have an indie-business mindset. Unlike employees, you have no big daddy taking care of you. And as much as I'd like to answer every one of your questions it's just not possible. You need to do a little of the legwork. V made some of the right moves by going to the IRS publication.

So here's V's question:

Hi June,

I enjoy reading your tax solutions, mail and newsletter for Indies. I had a couple of questions. I am an Indie and this is my first year as a self employed. I get reimbursed for my travel and meals expenses from my clients. I provide accurate accounting to my client for all the expenses. I have read Publication 463, page 32 regarding this. It clearly states that if you do not account to your client for the expenses you have to include it in income.

Now my question is: First, if you account to your client for the reimbursements, do you still have to include it in the income? Will it be on Sch C? If I have to include it in income, can I claim the expenses on Sch C as 100% deductible?

Second, for the month of December, I relocated to the city where my client is located and the client is reimbursing my rent. Is this reimbursement taxable?

Katy, TX

V --

Do take a look here for the answer to your 1st question -- expenses -- reimbursed .

The reimbursement for rent is income. It is an expense only if it qualifies as a home office deduction and then only part of it will be deductible. Check out my posts on home office here home office or studio .

Thanks for being my "example."


Indies Don't Receive Salary or Wages or Dividends

June --

I Have been a self-employed audiologist for 3 months. Where can I find current info about paying my self-employed self a salary vs salary+dividends and the tax implications for each option?

Specifically, how do I set that up now as I begin the business?


South Lebanon, OH

Hello Brandi,

Your question shows that you are new to self-employment and that you need a lot of information.

Indies do not receive salary. They receive gross income from clients, subtract expenses and are left with a net profit. I suggest you read some of these posts on being self-employed .

This, directly from my book, Self-employed Tax Solutions, explains a bit more:

Many self-employed people have a fuzzy idea about their own business profits. They think that the weekly, monthly, or occasional checks they write to themselves -- called draw in the corporate world - is their income or their salary or their profit. They are wrong.

The checks a self-employed makes out to himself have no bearing whatsoever on his income, expenses, profit, or taxes. Whether you write yourself a $100 or $1,000 check every week you are doing nothing other than altering cash flow by moving money from one place to another. It's called draw because you are drawing money away from someplace.

I wish you success,

Sunday, January 17, 2010

Google AdWords $100 Coupons: Not Taxable Income


I have just received a free $100 coupon from Google to use their AdWords program.

You can use it to establish an ad campaign and are charged per click. Using their offer provide a free $100 worth of Adords before you start getting charged. Do I have to report this as income if I use it?

If so, please explain.

Your book Self-employed Tax Solutions has been very helpful.


Hi Lou,

Thanks. Glad my book is a help.

No, a coupon or any kind of discount is not taxable income. And neither is it a business expense deduction.

For instance, if you buy $150 from Office Depot and use a 10% discount coupon you may deduct only the amount you actually paid as office supplies expense. In this instance it's $135 [150 - 15 = 135].

Same with the Google AdWords coupon.

And do remember that your income from Google AdWords is taxable income.


Tuesday, January 12, 2010

eBay Sellers: Recordkeeping For Purchases & EIN How-tp


I have purchased your book and it has been very helpful.

I have my own ebay business. It started selling mostly things in the house I was no longer using. Now, I purchase items at yard sales and resell them on my store. If I keep a list of items that I purchase at yard sales and what I paid for them, will this serve as a receipt for expenses?

Also, I want to expand my business this year by buying some wholesale items to put on my store. Some require an EIN to purchase. Do you recommend getting an EIN? I am a little afraid to use my social security number when purchasing items.

Your advice would be appreciated. Thanks so much!

Lewisville, NC

Dear Tammie,

It's good to hear that you business is growing. Not an easy thing in these hard times. And It's also good to hear that my book is helpful to you.

Your goal in keeping purchase records is not simply to know what you paid for items, your records also need to show that you have a "business motive." That means the more business-like your records or the more they can show that you put some time and effort into them, the better your image should the IRS take a look.

So yes keep a list. If possible get a receipt -- bring your own paper & pen -- from the garage sale seller. Save the ad announcing a garage sale. Take a camera and photograph the sign at the end of the driveway that alerts passersby to the sale. If you buy a big item then photo it. Anything that shows you're doing your best to keep accurate records.

And yes, an EIN is a good idea in your case. Here's the link to apply. And here are some of my posts on EINs.


Monday, January 11, 2010

When & Whether To Hire A Pro

Indies, let’s get a jump on the New Year by looking at how you look at your business.

This post was sparked by an email I received from an indie copywriter in Illinois which concluded that my seminar, website and blog provided a “vast array of resources” for the self-employed. Then she added, “but to be honest I would just like to hand over my materials to someone that I trust to do the job right.” She asked if I could I be that someone?

She didn’t ask for someone who could “help” or “assist” her but someone to whom she could hand over her material and whom she could trust.

Oh my goodness! I have a number of clients who are musicians, a career that has a long history of performers who didn’t want to have anything to do with business and were stripped clean of their money through the musician’s inattention, blind trust, or through the guile or incompetence of their managers. Haven’t you all heard one or two of those stories? The most recent: Leonard Cohen. It happens to talented, intelligent indies who don’t want to deal with the business side of their endeavors. They get ripped off. Somebody else ends up owning their copyrights. They owe Uncle Sam. Royalties are lost. I’m sure there’s no need to go on.

Indie: You are a business! Your business is you. You must develop what I call an indie-business mindset. I’ve talked about it before.

Self-employment requires that you take complete charge of all aspects of your business. It isn’t like writing copy as an employee of Callous Corp where your taxes are withheld every payday, you get paid for sick days, and if you have questions about pensions you go up to the 14th floor and ask the pension guy about it.

By taking charge I don’t mean that you can’t delegate tasks to someone else -- if you have the right person and the funds to pay that person. But you can never just hand it over. You have to be sure that the person doing whatever it is you hired him or her for is trustworthy and competent, well-informed, follows through, uses good judgment, knows when to take the initiative and when to come back to you for guidance. You can’t do that unless you understand the elements of what you have assigned to someone else.

You don’t have to be an expert on websites to hire a web designer but you’d better have a basic knowledge of how they work and what one will do for your business. Do you do it yourself? Spend $500? Spend $15,000? You don’t want to put three hours a day into FaceBook or Twitter or Google without some understanding of whether 15 to 20 hours a week will give you that much valuable business visibility and promotion.

Whether setting up your fee schedule, engaging a tech guy, or hiring a bookkeeper or a tax pro to do your taxes you must make the decisions. You have to assess whether your choice is clear-headed, sure-footed, and reality-based. Are you deciding based on the facts, on price only, on what’s convenient, on what Aunt Tillie told you? Without some understanding of and some familiarity with the aspect of your business that you're turning over to someone else, you can't make competent decisions and intelligent choices.

It’s only the employee who can just do the work and let the company make all the decisions. You are an indie. And whether you’re self-employed by choice or by circumstance due to these difficult times, you don’t have big daddy taking care of you.

You need information. You must educate yourself. As the copywriter from Illinois said: I offer a “vast array of resources.” You are in the right place to access them. Start educating yourself. Start reading.

And a new resource will be available shortly, The Confident Indie. Please be on the watch.

I wish you a creative and successful 2010!